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Concepts and Terminology

A shipping transaction
• Freight: The transported material
• Shipper / Consignor / (Freight) Originator: The shipping party.
• Consignee / Freight Receiver: The receiving patry
• Carrier: The firm that provides the transportation service
• Freight bill-of-lading (freight bill): A document serving as a contract between the shipper
and the carrier, specifying the obligations of both parties. In particular, it specifies:
– The Consignee
– The FOB (free-on-board) point, i.e., the point where the freight changes ownership (origin or
– The FOB terms-of-sale
• Who arranges for transport and carrier
• Who pays for transport (collect, prepaid, prepaid and charged back)
• FOB point
• Loss & Damage terms and potential insurance
Freight Types
• Bulk cargo: Cargo that is stowed loose on transportation vehicles, a tank or
hold without any packaging; handled by pump, scoop, conveyor or shovel. Ex:
grain, coal, petroleum and chemicals.
• Break-bulk cargo: Cargo in between bulk and containerized, that must be
handled piece-by-piece by terminal workers; often stored in bags or boxes and
stacked on pallets.
• Pallet: a small platform, usually 40x48in, on which (cartons of ) goods are
towered for handling in warehouses and transport vehicles.
• Containerized cargo: Cargo filling an entire container that is handled as a
single unit.
• Container: A single, rigid, sealed, reusable metal box in which freight is
shipped by vessel, truck or rail. Usually 8x8 ft in width & height, 20 to 55 ft
long. Some container types include: standard, high cube, hard top, open top,
ventilated, insulated, refrigerated, etc.
• Dunnage: Wood and packaging materials used to keep cargo in place inside a
container or transportation vehicle.
Freight Units
• Freight is typically measured by weight:
– Short ton (American) 2000 lbs
– Long ton (English) 2240 lbs
– Metric ton 2204.6 lbs (1000 kgs)
• or sometimes by cube, i.e., volume.
• Transportation equipment (vehicles, vessels, etc.) has pre-specified
weight and volume capacities; e.g.,
– Deadweight: The number of long tons that a vessel can transport of cargo,
supplies and fuel.
– TEU (Twenty-foot equivalent unit): Method for specifying a vessel load or
capacity in units of containers that are 20ft long. (e.g., a 3000 TEU vessel can
accommodate - at most - 1500 40ft containers).
– FEU (Forty-foot equivalent unit)
– Slot: A place for a container onboard a container ship (typically, one TEU).
Carrier Types
• Private carrier: Owned and operated by a shipper. Usually refers to private
trucking fleets. More advantageous solution for high density / short distance
or special-need shipments.(e.g., Safeway)
• Common carrier: A for-hire carrier providing services to general public.
– Parcel / express carriers (UPS, FedEx)
– LTL (Less Than Truckload) Trucking (Yellow, Consolidated Freighways)
– TL trucking (Hunt, Schneider)
– CL
– Rail carrier (Norfolk Southern)
– Air carriers (Delta, Flying Tigers)
– Ocean carrier (SeaLand, American President Lines)
• Liner Shipping: vessels sailing between ports on regular schedule, which is
published and available to public.
• Tramp shipping: Vessels calling at different ports upon availability of cargo
(used primarily for bulk shipping)
– Pipeline
Mediators and Integrators
• Freight forwarder: An agency that receives freight from the shipper and then arranges
for transportation with one or more carriers for transport to the consignee. Typically,
consolidates freight from many shippers to obtain better rates. Also, often provde
pickup and delivery services, as well as other shipping services: packaging, temporary
storage, customs clearing.
• Transportation Broker: An agency that obtains negotiated large-volume transportation
rates from carriers and resells this capacity to shippers. No additional services are
provided, though.
• NVOCC (Nonvessel-operating common carrier): Owns no vessels, but provides ocean
shipping freight-forwarding services.
• Shipper’s Association: Not-for-profit association of shippers using collective bargaining
and freight consolidation to obtain lower, high-volume transportation rates. Avoids
premium charge paid to forwarders. Only non-competitive shippers may associate, due
to monopoly restrictions.
• Integrators: Companies providing door-to-door domestic and international air- freight
service. Owns and operate aircraft as well as ground delivery fleet of trucks (e.g., UPS,
FedEx, Emery Worldwide).
• 3PL: A third-party, or contract, logistics company, used to outsource logistics services.
It can also handle: Purchasing, Inventory management/warehousing, transportation and
order management (e.g., Schneider Logistics, Ryder Logistics, UPS Logistics)
Transportation Systems
• Direct Shipping: Shipment travels directly from consignor to consignee.
Used primarily for TL shipping.
• Dead-head: A portion of a transportation trip in which no freight is
conveyed; an empty move.
• Hub-and-spoke: Large hub terminals are employed for freight consolidation.
Medium-volume services are used for spoke-to-hub collection and hub-to-
spoke distribution. Air freight, parcel shipping, LTL and, more recently,
ocean shipping is organized in this manner.
• Pickup and delivery (cartage): Local hauling of freight
• Longhaul (or Linehaul): Terminal-to-terminal freight movements
• Milk runs: a vehicle route in which a truck delivers (picks up) freight from
(for) a single terminal to (from) a number of consignees.
• Interline / Intermodal shipment: shipment employing more than one carrier /
transportation mode.
Charging Patterns for Common Carriers
• Related to shipment size
– LTL and LCL shipments: minimum total rate for quantities below a
minimum threshold, then several weight categories with different rates.
– TL and CL shipments: rate depends only on equipment size ordered.
– Time-volume rates: encourages shippers to send minimum quantities
regularly, in an effort by carriers to ensure regular flow of business
• Related to distance
– Uniform rates: independent of distance (e.g., USPS priority mail)
– Proportional rates: Fixed rate + variable rate per distance (truckload rates)
– Tapered rates: Increase with distance but at decreasing rate (air
– Blanket rates: constant rates for certain intervals of distance (e.g., UPS
rates, bulk cargo).
Charging Patterns for Common Carriers
• Related to product shipped
– Weight/volume, value / weight, value/volume
– Liability to loss, damage or theft
– Risk of hazardous material
– Expense of handling
– Security of container or packaging
• Special services
– Diversion and reconsignment
– Special equipment, e.g., refrigiration
– Demurrage / detention
– Stopoff charges
– Switching
– etc.
• Deferred rates: If the shipper is willing to accept delay in shipment
• Rates can also be affected by the existing demand: Revenue management
Factors affecting the choice of Mode
and Carrier
• Door-to-door cost
• Loss and damage: likelihood
• Loss and damage: claims handling
• Transit time reliability
• Rate negotiation experiences
• Shipment tracking / tracing
• Door-to-door transit time
• Pickup / delivery service quality
• Single-line service availability (no interlines)
• Equipment availability
Transportation-related Problems in
the Supply Chain design and
• User / Shipper’s perspective: Balance inventory, facility and
transportation costs while maintaining a service level in the
operations of the supply chain (typically, formalized in the
context of “inventory control” theory).
• Carrier’s perspective: Maximize profit by making best use of the
available transportation capacity. Involved costs:
– Capital costs
• Vehicle-related: fleet cost and major maintenance
• Terminal-related: land/rent, equipment, personnel
– Operational costs
• Trip-related: fuel, drivers, wear & tear
• Freight handling
• Overhead: planning and scheduling, customer service, etc.